Pink slips and furloughs.
Cost cutting through attrition.
Solvency? Doubtful.*
* According to the Wharton School of Business:
“Research has shown that if a company announces a downsizing without a broader reference to a strategic plan, its stock price will, on average, drop 5% to 6% over the next several days, according to [Michael Useem, a management professor at Wharton.] By contrast, if large-scale job cuts are announced as part of a broader restructuring, and a strategic plan is laid out, the firm’s stock will rise some 4%, on average, in the days following the announcement. Useem says the research shows that, contrary to popular wisdom, Wall Street does not always welcome job cuts for their own sake.”
Comments 5
While that is an interesting statistic, I do not feel that it necessarily addresses the question of solvency. I am certainly no economics expert (or even close really) but my impression of stock price has more to do with the company’s perceived value in the market place. While over time that certainly has an effect on solvency, in the short span of 4 days it really just seems to indicate how the stock market perceives the leadership of the company.
I would be interested in a study that investigated the effect on employee productivity, customer satisfaction and the business bottom line as a result of employee cutbacks. I think those drive more directly at the question of solvency.
That being said, having a plan is always the right way to go. The perception of the market is important to manage, even if only because it forces you to plan better.
Posted 20 Nov 2009 at 12:48 pm ¶Good points, Ben. And, in my own defense, I have to say that I’d like to see those studies as well, and looked for such before this post but ran out of time.
Mainly what I’m trying to get to is this: many companies think they can almost magically return to profitability by cutting overhead. This tactic certainly has an immediate impact on the numbers, but without a true plan for long-term recovery, solvency is a real issue.
Posted 20 Nov 2009 at 2:14 pm ¶On that point, I could not agree with you more. It’s much harder to measure the impact of lost institutional memory, personal relationships with customers and even the capacity for productivity. Those should be weighed carefully. There really is no replacement for good leadership and planning.
Posted 20 Nov 2009 at 2:40 pm ¶I wish I could agree with you both. Realy do. But I don’t. For all the eloquent business school logic printed on all the unrecycled, spent paper resources by all the wonderful authors, the facts of these arguments don’t bear up under actual scrutiny.
The sole objective of a corporation = maximizing profit, and for a very limited few. This is achieved, to use Madison’s phrase, by “protecting the minority of the opulent from the majority.” In other words, a very limited few among the wealthier class of business leaders shall always and perpetually reap the majority of all capital and financial benefits — no matter what. This has been true since corporations were originally devised and formed and it has remained a fairly stable system within industrial capitalism over the last 200 years, and it has been increasing recently.
A corporation is a bully, a tyrranical organization. It has limited or no liability yet all the “rights” of individuals, and a staff of lawyers for warding off and minimizing any legislative and public actions which in any way threaten its objectives (see above). Massive amounts of (tax-free) contrived PR and advertising serve to effectively manage the public mind and perception. We live in a business run society.
Personal relationships, service, institutional memory, customers, employees, benefits, retirement plans….none of these matter in the least unless they can be definitively and factually shown (on a spreadsheet) to serve and grow one thing: corporate profit and its perpetuation. Otherwise, these issues remain unimportant to its objectives, and are more often viewed as obstructing the flow of profits to the top.
Posted 20 Nov 2009 at 3:57 pm ¶Paul, I don’t believe our statements, yours and mine, conflict. I will ignore, for the sake of argument, the leadership of companies that try to operate in a manner that is less driven solely by profits and attempt to balance profits with human ethics, or even ideals. Some succeed, others do not. I would say the tendency toward pure-profit motives is difficult to stave off over time.
But for now, assume we are talking about the most black-and-white, bottom-line, profits-driven corporation. My point above was that it is difficult to measure the loss or costs of not retaining staff. That is a game of “what-if?” What is clear and easy to document is the amount of money saved on payroll by reducing the headcount. Regardless of the motivations that drive a business, my point was that some organizations will lose out on opportunities for growth or even retaining existing customers by cutting staff in hard times.
Posted 20 Nov 2009 at 4:31 pm ¶Post a Comment